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Dividend Aristocrats In Focus: Coca-Cola

Updated on May 22nd, 2024 by Bob Ciura

For superior long-term returns, investors should focus on high-quality dividend growth stocks. This comes to mind when reviewing the Dividend Aristocrats, a select group of 68 companies in the S&P 500 Index with at least 25 consecutive years of dividend increases.

We have created a free Excel list of all 68 Dividend Aristocrats, along with relevant financial metrics such as P/E ratios and dividend payout ratios.

You can download the full list by clicking on the link below:


Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.

We review all 68 Dividend Aristocrats each year. The 2024 Dividend Aristocrats In Focus series continues with a review of beverage giant The Coca-Cola Company (KO).

Not only is Coca-Cola a Dividend Aristocrat, it is a Dividend King as well. The Dividend Kings have increased their dividends for 50+ consecutive years. You can see all the Dividend Kings here.

Related: Dogs of the Dow: The Highest Yielding Dow Jones 30 stocks.

In addition, it has been diversifying away from sparkling beverages in recent years and those efforts have paid off. This article will examine Coca-Cola’s investment prospects in detail.

Business Overview

Coca-Cola is the world’s largest beverage company, as it owns or licenses more than 500 unique non-alcoholic brands and 200 master brands.

Since the company’s founding in 1886, it has spread to more than 200 countries worldwide. It currently has a market capitalization of more than $270 billion, making it a mega-cap stock.

Its brands account for about 2 billion servings of beverages worldwide every day, producing more than $42 billion in annual revenue.

The sparkling beverage portfolio includes the flagship Coca-Cola brand, as well as other soda brands like Diet Coke, Sprite, Fanta, and more.

The still beverage portfolio includes water, juices, coffee drinks, and ready-to-drink teas, such as Dasani, Minute Maid, Vitamin Water, and Honest Tea.

Source: Investor Relations

Coca-Cola dominates sparkling soft drinks. The company is attempting to maintain and even improve this dominant position with product extensions of existing popular brands, including reduced and zero-sugar versions of brands like Sprite and Fanta.

This is a challenging time for Coca-Cola. Sales of soda are slowing down in developed markets like the U.S., where soda consumption has steadily declined for years.

Declining soda consumption is a significant threat for the company. While Coca-Cola’s total volumes certainly still rely upon sparkling beverages such as soda, the company has gone to great lengths in recent years to diversify away from its core products.

Coca-Cola reported first-quarter financial results on April 30th, and results were better than expected on both the top and bottom lines. Revenue of $11.3 billion rose 2.7% year-over-year, and beat expectations by $330 million. Adjusted earnings-per-share of $0.72 beat by $0.02 per share.

The company expects organic revenue growth of 8%-9% for 2024.

Growth Prospects

In an effort to return to growth, Coca-Cola has invested heavily outside of soda, in areas like juices, coffee, teas, dairy, and water, to appeal to changing consumer preferences.

Due to the success of its growth initiatives, we continue to see Coca-Cola as having a favorable long-term growth outlook.

One reason we like the stock is because it competes in an industry that continues to grow globally in excess of the rate of broad economic growth. This leads to strong levels of overall growth in the industry, which Coca-Cola has certainly been capitalizing on in recent years.

In addition, the ready-to-drink category is sold through highly-diversified channels and continues to have mid-single digit projected growth rates, both for Coca-Cola and the industry.

Source: Investor Presentation

This is particularly true for still beverages like tea, coffee, and water. Coca-Cola’s years-old strategy to diversify away from sparkling beverages is due to this and it is undoubtedly bearing fruit.

Coca-Cola also continues to acquire brands in order to grow, including its acquisition of Costa, a coffee brand based in the UK.

Coca-Cola is doing what it takes to secure its future. In the relatively short time Coca-Cola has owned the coffee brand, it has expanded its offerings, including combining Coca-Cola and coffee in ready-to-drink packages.

Taking all of this into account, in addition to the company’s buyback program and productivity improvement efforts, we see total earnings-per-share growth of 5% annually over the next five years.

Competitive Advantages & Recession Performance

Coca-Cola enjoys two distinct competitive advantages, which are its strong brand and global scale.

In addition, Coca-Cola has an unparalleled distribution network. It has the largest beverage distribution system in the world. A new entrant would be hard pressed to recreate this distribution system, even with billions of dollars to invest.

These advantages allow Coca-Cola to remain highly profitable, even during recessions. The company held up very well during the Great Recession:

Not only did Coca-Cola survive the Great Recession, it thrived. Coca-Cola grew earnings-per-share by 36% from 2007-2010. This shows the durability and strength of Coca-Cola’s business model.

The company’s dividend also appears very safe, even after 60 years of consecutive increases. We would expect Coca-Cola to perform well during any future recessions.

Valuation & Expected Returns

We expect Coca-Cola to generate adjusted EPS of $2.80 for 2023. Based on this, Coca-Cola stock trades for a price-to-earnings ratio of 22.4. This is slightly below our fair value estimate of 23 times earnings, which means the stock is somewhat under-valued.

An expanding P/E multiple could increase annual returns by 0.5% over the next five years.

The stock will also generate positive returns through future earnings-per-share growth (estimated at 5%) plus the 3.0% dividend yield. Putting all of this together, we expect total annualized returns of 8.5% through 2028.

The overall result is that we expect Coca-Cola stock to generate solid shareholder returns at the current share price, and we rate it a hold.

Final Thoughts

Coca-Cola has made great strides repositioning its portfolio to meet changing consumer tastes. It has built a large portfolio of juices, coffees, and teas, to cater to a more health-conscious consumer.

There is more work to be done to diversify away from sparkling beverages, and we see solid growth prospects looking ahead.

We rate the stock a hold, but the stock remains a strong choice for income investors due to its above average dividend yield and long history of annual dividend increases.

These qualities make Coca-Cola a time-tested Dividend Aristocrat, and a blue-chip stock.

Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:

If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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